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Shipbuilding & Repair: Fragmented?

Posted to Global Maritime Analysis with Joseph Keefe (by on September 8, 2010

NSRP weighs in on workforce training and retention and ponders, “Ship Building & Repair: A fragmented industry?” Is a better question to ask, “Can This Patient be Saved?”

SITREP: Summer 2010

Rocketing quickly towards the end of the third quarter – and where did the time go, I ask you? – much is happening in the domestic shipbuilding arena. More correctly, there is plenty of news for American shipbuilders. That’s not to say that the industry resembles a beehive of activity. Far from it. Nevertheless, the current state of the once-mighty American shipbuilding machine shouldn’t surprise any of us. With the sand also quickly draining from the hourglass for the shipyards themselves, what to do about it isn’t all that clear. Here’s why:

This summer’s announcement that Northrop Grumman intends to close its Avondale shipyard and eliminate as many as 5,000 jobs may well be a harbinger of things to come as two wars wind down in the Middle East. The shipyard still has to complete two Navy ships, after which, the backorder book looks a bit thinner. And, future layoffs on the Gulf and West Coasts potentially involve thousands more skilled laborers that we may never get back if they move on. The National Shipbuilding Research Program (www.nsrp.org), who’s Crosscut Initiative Panel is chaired by Larry Gebhardt, hopes to do something about that.

Gebhardt’s NSRP analysis reveals that, “In most shipyards, people are either more than 45 years of age with more than 20 years of experience… or less than 30 years of age and have less than five years of experience.” NSRP characterizes this phenomenon as an industry facing issues related to both an aging workforce and ‘green labor.’ It is fair to say that with a few more announcements like those outlined above, one or both of those “issues” will go away quickly – along with the last vestiges of any serious U.S. domestic shipyard capacity.

Good News / Bad News

There is good news. The amount of federal money being thrown at U.S. yards recently is up, but still lags well behind other infrastructure pork projects like highways, rail and aviation upgrades. Beyond that, it will never come close to the subsidies heaped on foreign competitors. On the other hand, the majority of our merchant seamen and fleets emanate from the workboat industry and/or inland / coastal units on inland rivers and waterways. The need for this tonnage will be relatively static; floating with the economy to be sure, but it is not going away, especially given the state of our crumbling and congested highways. Unfortunately, this completes the “good news” section of this particular report.


The slow and lingering demise of the Hawaii Superferry – with both hulls now lurking in a Norfolk, VA shipyard awaiting liquidation (or rescue from Marad) – was probably the last nail in the coffin of the Title XI debacle. That’s because the Superferry is just one, but certainly not the most expensive, in a long string of high profile Title XI disasters. And, while I am not necessarily a fan of Washington’s track record in supporting or even promoting a viable domestic waterfront atmosphere, I would also gladly underwrite the psychiatric evaluation for anyone remotely considering, in the near term, any major-project Title XI loans.

The ongoing recession shows signs of abating, as witnessed by marked increases in Asian container imports in July. Container traffic at the port of Los Angeles rose to its highest level in the past two years, with imports posting more than a 20 percent gain from last year at this time. Long Beach traffic also increased to impressive levels and since the two ports typically receive as much as 40 percent of inbound container traffic, there is hope for a modest rebound. But these are largely foreign flagged vessels in a trade that saw as much as 12 percent of its capacity idled during the depths of the recent downturn. As such, the glut of available tonnage is not likely to go away any time soon. Beyond this, anyone looking to recapitalize probably has many less expensive and readily available choices in the used ship market.

The moratorium on offshore drilling on the U.S. Continental Shelf is on and off and on again. You need a scorecard to keep up with the litigation, legislation and trash talk. And, a second rig explosion in the U.S. Gulf isn’t going help the current political climate. One sure bet, though, is  that anyone on this side of the pond that was considering dipping their toes deeper into deepwater any time soon has probably taken those investment dollars of the U.S. table and put them somewhere else. The uncertainty has put a pall over anyone considering building assets – especially for U.S. Jones Act coastwise service and/or local oil patch support services – here in the USA.  
Finally, the lack of concrete support (Congress / Marad / White House) for rescinding the Harbor Maintenance Tax for the shortsea leg by default obviates the need for much in the way of additional U.S. tonnage to be built. This, coupled with an end to the wars and associated sealift effort – arguably the largest piece of our bluewater efforts – paints a glum domestic shipbuilding picture indeed. Like WWII, Korea, Viet Nam and the first Gulf War, the end of these kinds of events has always  signaled a recession for U.S. flag assets, crews and the need for repair and newbuild. If that much wasn’t clear, then the Navy’s intention to soon reduce its manpower by more than 3,700 billets should be more than sufficient in way of warning that a raft of new naval contracts are unlikely to come the rescue any time soon.

NSRP: Promoting Dialogue

Larry Gebhardt says that industry’s woes, to a certain extent, can be reduced to a simple common denominator: Fragmentation. Responding to a recent Marpro column which discussed the many failures of today’s U.S. Maritime Administration, the NSRP’s Cross Initiative Chair insists, “Part of the problem and solution is dealing with the industry fragmentation where the various parts don’t understand or talk with one another very well: shippers, logistics firms, port & harbor, ocean going and brown water vessel operating companies, marine finance, related insurance and law, shipyards for newbuild and repair, MARAD, Navy, Army Watercraft, NOAA, Coast Guard, state ferry systems, luxury yachts, a variety of trade organizations representing special interests, various industry print and web literature, Congress, etc.”

Gephardt has more than a little skin in the game. In addition to his NSRP responsibilities, he is also the Director, Research & Development for Alaska Ship and Drydock, Inc. (www.akship.net). Gephardt’s first career was with Navy nuclear submarines and the retired U.S. Navy Captain’s son is an active merchant mariner. Since then, he’s become involved with the US shipbuilding and repair industry, first as one of the founders of SENESCO Marine, a tug and barge yard in Rhode Island, and now, he is helping to expand the Ketchikan, Alaska shipyard – a state-owned, privately operated facility. Recently, and together with Don Bewley, he made a presentation to an all-panel NSRP meeting in Philadelphia last year about fragmentation in our industry. The scripted talk, entitled “Shipbuilding and Repair: A Fragmented Industry,” is primarily a conversation on workforce training and retention, but raises all sorts of other questions, as well.
Among the valid points that Gephardt and his NSRP crew make in their presentation is the observation that although there are as many as many as four U.S. government agencies – DoD, DHS, DOT (Marad), and NOAA – responsible for operating or maintaining ships, the individual offices rarely talk to one another and, at least until recently (with the Coast guard’s Deepwater troubles as a classic example), public acquisition strategies remained largely stovepiped. But the document goes on to say much more, and touches upon all aspects of U.S. shipbuilding. It’s worth a read.

Looking Ahead

Given the current state of affairs, the U.S. shipbuilding industry, now far astray from its robust roots in steel production and lacking the vertical integration advantages of its foreign counterparts, is going to need a whole lot more than dialogue if it hopes to bridge the gap between what looks like the next cyclical downturn. There are no easy answers. And, the perfect storm of the softening military sealift requirements, a sour economy and the current administration’s brake on offshore U.S. Gulf development will do nothing except exacerbate what might otherwise be just another lull in the action.

As for NSRP, they  continue the good fight in the hopes of producing dialogue that turns into concrete results. Don’t hold your breath, however. As one seasoned shipbuilding expert told Marpro this week – on the condition of anonymity – “NSRP is an industry/government group that sponsors shipbuilding research, holds symposia and generally accomplishes little else. The pdf file makes some valid points, but so what? He was preaching to a largely ineffective choir.” My take on all of it is just a little rosier, but our expert’s point is a good one, too. Gephardt responds, “I’m sure that someone will take offense at some of the points made, but the questions about what is good for a more collaborative industry in terms of common efforts for common good is worth more conversation.” I agree.

At the end of the day, a viable domestic shipbuilding industry remains as the lowest (and arguably the most important) common denominator for our collective U.S. flag fleets. Without it, Senator John McCain may get his way, after all. Now, that’s worth talking about. – MarPro.

Contact Gephardt more information about NSRP at: lpgebhardt@cableone.net.

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Joseph Keefe is the lead commentator of MaritimeProfessional.com, a licensed mariner and a 1980 graduate of the Massachusetts Maritime Academy. His work can also be seen in print within the pages of MarineNews and in The Maritime Reporter magazines. He can be reached at jkeefe@maritimeprofessional.com or at Keefe@marinelink.com. MaritimeProfessional is the largest business networking site devoted to the marine industry. Each day thousands of industry professionals around the world log on to network, connect, and communicate.

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